Should you buy Maruti Suzuki post Q1 result?

• Follow

Shares of Maruti Suzuki were trading at Rs 7,010.40 down by 2.16% a day after the company posted a standalone net profit of Rs 441 crore for the quarter ended June 30 against a loss of Rs 229.40 crore in the same period last year. The total income of the country’s largest carmaker increased 237% year-on-year (YoY) to Rs 18,278.50 crore.

In a regulatory filing, Maruti Suzuki said that the company’s operations and financial results for the quarter ended June 30 have been adversely impacted by the outbreak of the Covid-19 pandemic and the consequent lockdown announced by the state governments due to which the operations were suspended for part of the quarter and gradually resumed with requisite precautions.

The company sold a total of 353,614 units during the quarter. Sales in the domestic market stood at 308,095 units. Exports were at 45,519 units. During the same period the previous year (Quarter 1 FY 2020-21), the company sold a total of 76,599 units including sales of 67,027 units in the domestic market and exports of 9,572 units. The total sales in Q1FY2018-19 stood at 490,479 units.

There is no doubt Maruti’s performance has been weak in Q1FY22 but the quarter was tough given the lockdown restriction due to the second wave of Covid 19. Here is what brokerages are saying about the stock

Prabhudas Lilladher | Rating: Accumulate | Price target: Rs 7,684

While concerns over raw material inflation, product pipeline and supply shortages sustain, we believe Maruti Suzuki is well placed amongst OEMs (original equipment manufacturers) as it will likely benefit from a shift towards personal mobility and CNG vehicles. The company is well placed to manage supply shortages and has superior franchisee strength.

Citing this Prabhudas Lilladher raised its FY22/23 EPS (earnings per share) by ~12%/7%, and assign the rating ‘ACCUMULATE’ rating with the price target of Rs7,684 based on 27x Mar-23 EPS. The demand scenario in July month, however, improved with a strong recovery in both rural and urban segments.

Motilal Oswal | Rating: Buy | Price target: Rs 8,200

Maruti Suzuki reported a weak performance in 1QFY22, weighed by the impact of the lockdowns on volumes as well as commodity cost inflation. While commodity inflation would persist in 2Q, there are drivers in place for sustained volume and margin recovery from 2HFY22E.

Motilal Oswal has lowered lower its FY22E/FY23E EPS by 13%/3%, factoring in further cost inflation in 2Q, higher staff costs, and lower other income.

Sharekhan | Rating: Buy | Price target: Rs 8,587

Sharekhan expects FY2022 to be a stronger year for Maruti Suzuki, driven by strong volume growth. Volume growth will be aided by new product launches, a quick economic recovery, upside from COVID-19 vaccines, and a low base. Companies strong distribution network in the passenger vehicle (PV) segment and rural penetration are likely to drive strong revenue growth going forward. Volumes are expected to recover from FY2022 with expectations of strong double-digit growth, aided by robust exports as well. Maruti would benefit from operating leverage, driven by robust volume growth. The brokerage firm expects Maruti’s earnings to post a 40.4% CAGR (compounded annual growth rate) during FY2021-FY2023E, driven by a 21.9% revenue CAGR and a 350 bps (basis points) improvement in EBITDA (earnings before interest tax depreciation and amortization) margin. RoCE (return on capital employed) to improve to 16.8% in FY2023E from 13.6% in FY2020.

Antique | Rating: Sell | Price target: Rs 5,600

Antique expects pressure on Maruti’s market shares to sustain, as Utility Vehicles (UVs) sales will likely grow faster, where the company’s market share is relatively lower. Further, it expect the competitive intensity in the industry to rise with the launch of aggressively priced compact/micro SUVs by peers, which will result in higher discounts in the segment. Rising commodity prices, regulatory changes in FY23/24E, wage negotiations and increase in discounts, pose risk to our and street’s margin estimates.

The brokerage firm believes that Maruti Suzuki to grow domestic volumes by 26% in FY22E, albeit off a low base. However, the record-high fuel prices, increase in vehicle costs and adverse impact of Covid-19 on incomes and sentiment pose downside risk to the industry volume growth assumptions. The new model pipeline for Maruti is attractive and we have factored in the volume, ASP and margin upside from the new models in our estimates. MSIL stock is trading at 28x FY23E core-earnings, which is at a 15% premium to its historical valuation.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)